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Chapter 9
Investments
NAME: Date:
Professor: Section: Score:

QUIZ:
1. According to PFRS 9, a financial instrument is recognized
a. when the instrument has probable economic benefits that can be measured
reliably.
b. only when the entity becomes a party to the contractual provisions of the
instrument.
c. when the entity enters into a binding contract to deliver a variable number of its
own equity instrument.
d. only when the instrument requires receipt of another financial instrument under
conditions that are potentially favorable.

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2. Which of the following is a financial liability?

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a. Income tax payable

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b. Unearned revenue

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c. Warranty obligation
d. Lease liability

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3. During the period, an entity acquires an investment. The entity has a “hold to collect
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and sell” business model. The investment should be classified as
a. investment measured at fair value through other comprehensive income.
b. investment measured at amortized cost.
c. investment measured at fair value through profit or loss.
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d. any of these
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4. Which of the following is measured at fair value with fair value changes recognized in
profit or loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
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c. FVOCI
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d. All of these

5. If an entity’s business model’s objective is to hold investments in order to collect

contractual cash flows that are solely payments for principal and interests, then
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investments should be classified as

a. subsequently measured at fair value through other comprehensive income.
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b. subsequently measured at amortized cost.

c. subsequently measured at fair value through profit or loss.
d. any of these
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6. Under PFRS 9, financial assets are classified

a. on the basis of the entity’s business model only.
b. based on the nature of the financial assets, i.e., debt or equity instrument.
c. as financial assets subsequently measured at FVPL, FVOCI (election), FVOCI
(mandatory) or Amortized cost.
d. all of these

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7. According to PFRS 9, if an asset or a liability measured at fair value has a bid price
and an ask price, the price within the bid-ask spread that is most representative of fair
value in the circumstances is used to measure fair value. Bid price is
a. the maximum price at which market participants are willing to sell an asset.
b. the maximum price at which market participants are willing to buy an asset.
c. the minimum price at which market participants are willing to sell an asset.
d. the price that an entity will incur to bid farewell to an asset.

8. The following are taken from the records of Lunch Co. as of year-end.
Cash 10,40 Investment in 44,00
0 subsidiary 0
Accounts receivable 12,00 Treasury shares 44,80
0 0
Allowance for bad (1,60 Investment in 9,600
debts 0) bonds
Note receivable 4,000 Land 112,0
00
Interest receivable 1,600 Building 208,0
00
Claim for tax refund 9,600 Accum. (52,00

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depreciation 0)
Advances to 4,80 Investment 40,0

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suppliers 0 property 00

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Inventory 60,00 Biological assets 24,00

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0 0
Prepaid expenses
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4,000 Intangible assets 56,00
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Petty cash fund 800 Deferred tax 48,00
assets 0
Investment in equity Cash surrender 9,600
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securities 10,40 value

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Investment in 16,00 Sinking fund 16,00

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associate 0 0

How much are the total financial assets disclosed in the notes?
a. 142,400 b. 132,000 c. 132,800 d. 92,800
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Use the following information for the next three questions:

On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for ₱250,000.
Commission paid to broker amounted to ₱10,000. The equity securities were designated
by management to be measured at fair value through profit or loss. On December 31,
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20x1, the shares are quoted at ₱200 per share. It was estimated that transaction cost of
₱20 per share will be incurred if the shares were sold on that date.
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9. How much is the unrealized gain (loss) on change in fair value recognized in the 20x1
profit or loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000
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10. On January 3, 20x2, all the shares were sold at ₱300 per share. Commission paid for
the sale amounted to ₱60,000. How much is the realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)

11. If ABC Co. uses an allowance account to account for changes in fair values, how much
is the balance of this account on December 31, 20x1?
a. 70,000 debit c. 40,000 credit

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b. 50,000 debit d. 50,000 credit

Use the following information for the next three questions:

On Jan. 1, 20x1, Three Co. purchased 10,000 shares of AM, Inc. for ₱1,000,000. Three Co.
paid broker’s commission of ₱15,000 on the acquisition. Three Co. made an irrevocable
choice to subsequently measure the shares at fair value through other comprehensive
income. The quoted prices per share on Dec. 31, 20x1 and Dec. 31, 20x2 were ₱90 and
₱108, respectively. On Jan. 3, 20x3, Three Co. sold all the shares at ₱105 per share. Three
Co. paid broker’s commission of ₱16,000 on the sale.

12. How much is the unrealized gain (loss) recognized in Three Co.’s 20x1 profit or loss?
a. 115,000 b. (115,000) c. (85,000) d. 0

13. How much is the unrealized gain (loss) recognized in Three Co.’s 20x2 other
comprehensive income?
a. 180,000 b. 65,000 c. (115,000) d. 0

14. How much is the cumulative gain (loss) transferred to retained earnings on Jan. 3,
20x3?

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a. 19,000 b. 34,000 c. (19,000) d. (34,000)

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15. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at a price that reflects a

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yield rate of 14%. The bonds mature on January 1, 20x4 and pay 12% annual interest.
The bonds are classified as held for trading securities. On December 31, 20x1, the

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bonds are selling at a yield rate of 10%. How much is the unrealized gain (loss) on the
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change in fair value recognized in ABC’s 20x1 profit or loss?
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a. 78,336 b. 83,561 c. 81,144 d. 0
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“Go ahead and be lazy; sleep on, but you will go hungry.” (Proverbs 19:15)
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- END –
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ANSWERS:
1. B
2. D
3. A
4. B
5. B
6. C
7. B

8. C
Solution:
Cash and cash equivalents 10,400
Accounts receivable 12,000
Allowance for bad debts (1,600)
Note receivable 4,000
Interest receivable 1,600
Petty cash fund 800
Investment in equity
10,400

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securities

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Investment in associate 16,000
Investment in subsidiary 44,000

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Investment in bonds 9,600
Cash surrender value 9,600

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Sinking fund 16,000
Total financial assets
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9. B (1,000 sh. x 200) = 200,000 fair value, Dec. 31, 20x1 – 250,000 = (50,000)
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unrealized loss
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10. C
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Solution:
Sale price (1,000 shares x 300) 300,000
Commission paid on the sale (60,000)
Net disposal proceeds 240,000
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Carrying amount – Dec. 31, 20x1 (1,000 x 200) (200,000)

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Realized gain on sale 40,000

11. D
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12. D Changes in fair values are recognized in OCI

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13. A (108 – 90) x 10,000 = 180,000

14. A [(10,000 x 105) - 16,000] – (1,000,000 + 15,000) = 19,000 gain

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15.C
Solution:
Present
Future cash flows PV @14%, n=3 PV factors
value

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Principal 1,000,000 PV of P1 0.674971516 674,972

Interest (1M x 12%) 120,000 PV of ord. annuity 2.321632027 278,596
Fair value on Jan. 1, 20x1 953,567

Present
Future cash flows PV @10%, n=2 PV factors
value
Principal 1,000,000 PV of P1 0.826446281 826,446
Interest (1M x 12%) 120,000 PV of ord. annuity 1.73553719 208,264
Fair value on Dec. 31, 20x1 1,034,711

Fair value as of Dec. 31, 1,034,7

20x1 11
Fair value as of Jan. 1, (953,5
20x1 67)
81,1
Unrealized gain 44

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